Issues in Advertising: The Economics of Persuasion

By David G. Tuerck | Go to book overview

COMMENTARIES

Harold Demsetz

Why is it that we do not yet have good positive theories of advertising expenditure, with apologies to excellent beginnings by Nelson and Telser? The answer, I believe, is that we have no theoretical precedents to guide us. Economists have never seriously tried to explain the intensity with which firms use fertilizer, copper, or any other specific productive input. They have not found this problem sufficiently interesting. This judgment is, I believe, generally correct, even in the case of advertising. Yet, the use of advertising inputs has received attention from economists, even if no good positive theories have been developed.

If we asked people to rank the importance of problems that face our society, I doubt very much that they would rank advertising very high, if at all. The source of our interest in advertising is in the concern shown by intellectuals, not the general public. That is why we are contributing to this volume. Intellectuals have forced us to discuss something that is not worth discussing.

The intellectual--and over persistent objections I include myself in that category--looks at this life and finds things not quite to his liking. People do not behave as he would like them to. They purchase swimming pools, Cadillacs, and tickets to football games. Since many of us are in the business of selling a different life style, it is quite natural for some of us to view commercial advertising, which, after all, is a mechanism by which consumers and producers get together to communicate about wants and life styles, as an obstacle to our effort to persuade others to adopt the good life as the reformist intellectual sees it.

Galbraith wrote a book that says that commercial advertising causes the private sector to be too large and that we need a compensating expansion of the public sector, a position that might be interpreted as a basis for concern about advertising.1 We find intellectuals rising in

____________________
1
John K. Galbraith, The Affluent Society, 3rd ed. ( Boston: Houghton Mifflin, 1976), pp. 129-131.

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Issues in Advertising: The Economics of Persuasion
Table of contents

Table of contents

  • Title Page iii
  • Major Contributors v
  • Contents ix
  • Introduction 1
  • Acknowledgments 11
  • Part One Issues in Regulation 13
  • Advertising and Legal Theory 15
  • Advertising Regulation and the Consumer Movement 27
  • Commentaries 45
  • Part Two Advertising and the Firm 69
  • Towards a Theory of the Economics of Advertising 71
  • Introduction 71
  • Optimal Advertising: An Intra-Industry Approach 91
  • Conclusion 111
  • Technical Appendix 112
  • Commentaries 115
  • Part Three Advertising as Information 131
  • Advertising as Information Once More 133
  • Appendix A: Derivation of the Relationship Between a and P 156
  • Appendix B: Data Sources 158
  • Advertising, Information, and Product Differentiation 184
  • Commentaries 193
  • Four Part Advertising, Concentration, and Profits 215
  • Advertising Intensity and Industrial Concentration- an Empirical Inquiry, 1947-1967 217
  • Conclusions 249
  • Advertising and Oligopoly: Correlations in Search of Understanding 253
  • Appendix A 262
  • Appendix B 263
  • Commentaries 267
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